Hedge funds’ fourth bullish week boosts copper positions

Red Oak

The JoC-ECRI Industrial Price Index, which tracks 18 industrial commodities from plywood to cattle hides, is up 10% from a three-month low in November. The measure, begun in 1985 by Geoffrey Moore, founder of the Economic Cycle Research Institute and a mentor to former Federal Reserve Chairman Alan Greenspan, can be used as a leading indicator for global production. Nine components, including ethylene and red oak, aren’t traded on U.S. exchanges and are less influenced by investor sentiment.

The debt crisis in Europe will be a drag on world economies and limit commodities demand, said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York-based Aegis Capital Corp.

European Central Bank President Mario Draghi said Feb. 7 that the risks to the region’s economy remain to the downside. The continent uses about 18% of the world’s copper, Barclays estimates, and accounts for 22% of oil consumption, according to data from BP Plc.

Europe Risks

“The problems in Europe have not been fixed,” Crouch said. “Since China is heavily dependent on exports, the slowdown in Europe will continue to weigh on China. I would say there will be a systemic retracing of the risk-asset complex and commodities will come lower.”

Money managers added a net $307 million to commodity funds in the week ended Feb. 9, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from gold and precious-metals funds totaled $63 million, he said.

Bets on gains in palladium rose 1.3% to 22,824 contracts, the highest since the CFTC data begins in 2009. On Feb. 6, prices in New York reached the highest since Sept. 6, 2011. Bullish platinum wagers grew 3.9% to 42,530 contracts. Aquarius Platinum Ltd., the world’s fourth-largest producer, said on Feb. 8 that it expects a global supply deficit this year.

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